New French VAT Rules Could Mean End of Tax-Free Yacht Charters

The cost of enjoying a Mediterranean yacht charter vacation may be going up as new rules, and confusion, regarding taxes on commercial yachts go into effect.

In the past, luxury mega yacht charter vessels in the Mediterranean were often exempt from paying a French Value Added Tax (VAT or sometimes referred to as, TVA) on both the value of the charter and on any fuel and provisioning. Recently, increased pressure from the

European Union to bring French law into line with the rest of the union states has resulted in the European Commission forcing the French Government to amend its rules on exemptions.

Jana Sheeder, a yacht industry maven and President of SailAway Yacht Charters, explains: "In the past, a yacht used solely for commercial activity would hire a permanent crew and register as a commercial vessel to obtain an exemption from paying the VAT. Under the new rules, the same activity, crew, and registration rules apply, but there is a catch – the yacht ‘must be used for navigation on the high seas.‘"

It is this new wrinkle that has Sheeder and the yachting industry confused. "So far, the French government have not defined or clarified what is meant by the term, "used for navigation on the high seas."

A manager of a fleet of mega yacht charter vessels in France, who wished to remain anonymous, echoed Sheeder’s concerns. "At what point does ‘high seas’ come into play? Ten miles off shore? Twenty miles? No one knows," the manager said.

It seems the taxing authorities are not certain how to proceed, either. "We are not aware of any attempts by the French Customs and Excise authorities to enforce this new rule," says Sheeder.

For now, it remains a game of wait-and-see. Industry lawyers are closely monitoring this situation, and conferences are planned in London and Monaco in the coming weeks to keep charter professionals up to date.

Sheeder points out the importance of explaining the new rules to her customers. "While we are not charging the VAT to any of our clients, we are clearly explaining the potential tax liability they may incur, perhaps even after the conclusion of the charter."